The World Economic Forum trailed its annual event, in Davos next week, by launching the “Davos Manifesto”–on “the purpose of the company in the Fourth Industrial Revolution”. We’ll leave aside the notion of the “fourth industrial revolution”, which is just WEF marketing. The manifesto is about the purpose of the company.
What to make of it?
The first thing to say is that it is admirably short, less than a page. Even the most time-pressed CEO has no excuses for not reading it.
The second thing is to welcome it, even if it feels as if they are coming a bit late to this particular party. They could have done this any time in the last decade. As it is, even the fairly conservative US Business Roundtable got out a public statement about the importance of stakeholder capitalism, not shareholder capitalism, before WEF published the Manifesto. When Gillian Tett asked WEF CEO Klaus Schwab about this for the Financial Times Moral Money newsletter, he said the Roundtable was just catching up with a position he’d held since 1973.
The third is that it’s clearly a manifesto for productive long-term capitalism, rather than extractive short-termism–it’s in favour of bees, not locusts.
“A company treats its people with dignity and respect…. A company considers its suppliers as true partners in value creation… A company serves society at large through its activities… It acts as a steward of the environmental and material universe for future generations.”
So, all in all, this is a welcome sign that the Friedman doctrine on company rationale is now dead, at least at the level of rhetoric. Friedman argued that the only purpose of a company was to serve shareholders. This generated hugely destructive corporate behaviour through the 80s, 90s, and beyond.
Feeling less bad
But the problem is this. The Davos meeting is a place for CEOs to go to feel less bad about some of the consequences of the way they run their business. Aspects of climate change have regularly come out as one of the biggest risks in the annual WEF Risk Assessment, This is partly compiled through asking the opinions of WEF members. But CEOs have largely been “polishing doorknobs” on the issue.
In her interview, Tett pushed Schwab lightly on whether highly paid were credible environmental activists.
[Moral Money]: Are you worried that the issue of high executive pay is going to undermine the credibility of the ESG debate?
[Klaus Schwab]: If you take it from an academic, theoretical point of view, then of course this is undermining. [The issue of executive pay] was in our statement. A lot of our members said “be careful”.
[MM]: Will you have an open debate about that in Davos?
[KS]: I don’t know yet. In the long run, we have to have this debate, but I think you have to also go step by step. If we go too fast there could be a counter reaction.
But none of this is enough any more, as we argue in our recent article on ‘Business Challenges for the 2020s’. Siemens has just learnt this the hard way. News broke that it was contracted to support the development of the Adani Carmichael mine in Australia. Terrible timing, of course, and the long and defensive statement from the company President and CEO smelled of protesting quite a lot too much. The reputational damage has been done.
If WEF is serious about the Davos Manifesto, it will need to start excluding companies that show no signs of being more purposeful. That seems unlikely to happen.